The Three Signs We're In The Midst Of A China Slowdown

China's economy is in the midst of a slowdown, which is being
driven by three factors slamming the economy simultaneously,
according to Societe Generale.

There team of Asia analysts point to a combination of monetary
tightening, a margin squeeze, and supply-chain disruptions due to
the Japanese earthquake as the main drivers.

From Societe Generale:

The monetary policy tightening so far has started to bite on the
private sector, especially small- and medium-sized enterprises.
Commodity price inflation and wage growth has driven
manufacturing costs up by 20~30%, while the government is trying
to block pass-through to consumer prices. This margin squeeze has
led factories to scale back input purchases since March, which is
evident in PMI surveys. Current power shortages are actually one
the examples of margin squeezes. Last, the impact of Japan’s
earthquake has reached China’s auto sector, as sector production
contracted 1.8% yoy in April.

But this slowdown doesn't mean that China is about to go through
the oft-mentioned "hard
landing" scenario. There's plenty still going right for
growth, with consumption and investment still rising, and loans
still be doled out freely.

The big question, according to Societe Generale's team of
analysts, is how much the Chinese economy needs to slow, for the
country's leadership to halt its tightening cycle.

Gary Shilling said in February that a Chinese hard landing would
require a fall back to 6% GDP growth. Right now, however, the
current industrial production data suggests we're going to see
9.1-9.4% GDP growth in 2011, according to Societe Generale. So
we're not even close to that hard landing scenario, yet.